The new rate is likely to be in the range of 0–1%
2018 will hopefully be the year that insurers put their discount rate woes behind them. The new draft legislation presents a clearer and fairer framework for setting the discount rate, that should halt the chronic overcompensation recently acknowledged by the Ministry of Justice as occurring under the current -0.75% rate.
Insurers are expecting a positive discount rate to be implemented in the next 6–12 months, although what the rate will be is still up in the air. Interestingly, the Government has jumped the gun somewhat by indicating the discount rate would likely increase to between 0–1% under the new proposals. This is probably the level the Government is aiming to reach, whatever the final legislation ends up looking like.
Although predominantly good news for the market, there remains the possibility the Lord Chancellor will not go far enough, particularly as the recent increase in interest rates provides fresh evidence for the discount rate to be increased further.
Despite a potential 12-month wait for this legislative change, neither insurers or claimant representatives are delaying the payment of proper and fair compensation to injured parties. Rather, a sensible and pragmatic approach is being taken by the vast majority to compromise claims now on a positive discount rate.